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15 Ways to Increase the Value of Your Business

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Do you own a business? Are you planning for a transfer of control (sale, gift to family, ESOP to employees, etc.), but want to build value first? Here, from an M&A expert and written in plain English, are 15 key ways guaranteed to make that happen.
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    Page 1 15 Ways to Increasethe Value of Your Business A unique, practical guide preparedfor you by transaction experts at New York Chicago Dallas Toronto Los AngelesMumbai, India Beijing, China Oxford, England © Copyright GroGroup LLC April, 2009. All rights reserved     Page 2  Introduction Welcome to our world, where we focus on maximizing value.Private company value, particularly in transactions that result in thetransfer of control (e.g., gifting, inter-generational sale, ownership dis-tribution, recapitalization, outright sale of ownership) is not a singlenumber, nor is it static outcome. Actually, it is a dynamic series of per-ceptions, a state of mind that can be transformed into money in thebank.Assigning value is a complex process that is influenced by myriad,concurrent influences. Positioning, presentation, preparation, compe-tition, techniques and knowledge all contribute to the equation. In thesale of control, the two biggest and most controllable variables of alldetermine most of the outcome: (i) how the process is handled and (ii)the stage in the business cycle at which the selling dialog matures.These two factors alone will either cost you substantial wealth, or pro-duce incremental value far greater than any other single thing youmight attempt to do, setting the stage.Here are fifteen of the most universal key factors that you, the entre-preneur, can manage and implement to impact the value of your busi-ness. Are there others? Sure, but those tend to be specific to an in-dustry, region or temporary market circumstances. If you work thesefifteen factors properly, your business will  be worth more, when youdecide to borrow money, sell, or transfer control in other ways.These 15 Key Factors (also called value drivers) represent the insidestory on what generally affects the purchase price of businesses.Based on real-world transactions, these factors come directly fromskillful business buyers. Make no mistake about it, in a professionallyrun selling process, it is those informed and carefully positioned buy-ers (motivated by greed, fear of loss, ego and whatever else) who arethe true arbiters of value.    Page 3 With a wealth of experience acquired by funding and/or investing $1.25billion in 68 businesses; buying and selling 130 businesses for about$400 million; starting two businesses; and turning around another for sale to a Fortune 25 company, GroGroup professionals are in a uniqueposition to provide these insights. In the process of representing busi-ness owners, we have interacted with thousands of business buyers,ranging from multi-billion dollar strategic companies to million-dollar in-vestors.This guide was prepared to assist you, the business owner, in planningand directing your efforts so that, when the time comes to benefit fromyour enormous investment of money, time, emotion and effort, every-thing will be properly positioned to command the best possible value.So, go ahead. Try it out. Make it grow. Call us when you are ready toset things into motion. Until then, take good care of your baby, themarvelous family money tree that you have created and nurtured. 551 Valley Road, Suite 105, Upper Montclair, NJ 07043tel (973) 707-8928 fax (973) 860-0757info@gro-group.biz www.gro-group.biz    Page 4 Key Factor #1 Develop Proprietary Products Selling products that are proprietary (by reason of technology, design,branding, or even packaging) will mean both (i) higher profits along theway, and (ii) be a major plus in the eyes of a buyer. Proprietary prod-ucts protect you from competition and also enable you to elevate your selling/value proposition to something beyond price. Contrast this withcommodity products and job shops, where the company does not con-trol the product value; in fact, the marketplace dictates it.Cash flow realities may obligate you to deal in commodity-type productsin the near term, but efforts to build equity value should eventually berewarded if you infuse product/service lines with branding and other proprietary content. Interestingly, this higher-margin model even mayreduce incremental working capital needed to support growth.One client company fabricated items from advanced materials, gener-ally in a job shop industry. Yet, through investment in people, equip-ment and R&D, the company developed unique products with excep-tional profit margins. As they accelerated their movement away fromcommodity products, the value growth actually accelerated  because of two things: (i) the level of profitability on each dollar of sales revenuespiraled upward, and (ii) the purchase price multiple achievable jumped,too.Another client took a different, but equally successful approach. A dis-tributor, they didn’t actually make anything, but repackaged (or private-labeled) over 80% of all products they shipped. Even things as basic assimple wood screws carried their logo, trade dress and packaging style.Margins were well over 50% because their products appeared to beunique (proprietary).

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